23 May 2023
Dear Experts Kindly shed some light as to whether GST is applicable on loss of sale of Assets. We are a Pvt Ltd Company. We sold a Cell phone at a loss after using it for five years. The Auditor has raised an observation that GST should be reversed in case of loss as well. As per Rule 40 of CGST rule 2017, the input tax credit on capital goods, in terms of clauses (c) and (d) of sub-section (1) of section 18, shall be claimed after reducing the tax paid on such capital goods by five percentage points per quarter of a year or part thereof from the date of the invoice or such other documents on which the capital goods were received by the taxable person. Is this position correct. If Yes, then how to reverse the ITC ? Kinldy elaborate. Thanks in Advance Shriram Deshpande
09 July 2024
Under GST rules, when a business entity sells a capital asset (like a cell phone used for business purposes) at a loss, there are specific considerations regarding the reversal of Input Tax Credit (ITC) that was claimed on the purchase of that asset. Here’s how it generally works:
1. **ITC on Capital Goods:** - When you purchase capital goods (such as the cell phone in your case), you can claim Input Tax Credit on the GST paid at the time of purchase. - As per Section 18(6) of the CGST Act, if you sell, transfer, or dispose of capital goods or plant and machinery on which ITC was claimed, you are required to pay GST on the transaction value. - The amount of GST payable is determined by reducing the ITC claimed on the capital goods by 5% for every quarter or part thereof from the date of purchase until the sale.
2. **Treatment of Loss on Sale:** - If you sell the capital goods (cell phone) at a loss, the consideration received is less than the value on which GST was originally paid. - GST is payable on the transaction value (consideration received) or the residual value of the capital goods, whichever is higher. This means that even if you sell the cell phone at a loss, you are required to reverse the ITC proportionate to the extent of the loss.
3. **Reversal of ITC:** - **Calculate the GST Payable:** Determine the amount of ITC that needs to be reversed based on the rules mentioned in Section 18(6). This involves calculating the ITC reduction for each quarter or part thereof since the purchase date up to the sale date. - **Adjustment in GST Returns:** Report the reversal of ITC in your GST returns (GSTR-3B). You will reduce the ITC claimed initially by the amount determined as per the rules. - **Payment of GST:** Pay GST on the sale of the capital goods as per the applicable rates. This amount needs to be paid in cash, and you cannot offset it against the ITC balance available for other purposes.
4. **Documentation and Compliance:** - Maintain proper records of the sale of the asset, including the calculation of GST payable and the reversal of ITC. - Ensure that these adjustments are correctly reflected in your GST returns to comply with GST regulations.
5. **Consultation with Tax Advisor:** - Given the complexities involved in GST treatment of capital goods and losses on their sale, it’s advisable to consult with a tax advisor or GST expert who can provide specific guidance tailored to your business circumstances.
In summary, yes, GST is applicable on the sale of capital goods, including cases where the sale results in a loss. The ITC claimed initially needs to be reversed in proportion to the loss incurred on the sale, following the guidelines laid out in Section 18(6) of the CGST Act and corresponding rules.
CAclubindia
